Procrastination will cost you as nasty late fees accumulate

The Washington Post

Nobody likes paying late fees, but Dave Woodruff holds them in particular contempt, whether they’re on his credit card, his mortgage or a video rental.

Here’s how he sees it: If he pays a bill and his check gets there a minute past deadline, he’s hit with a hefty charge. Yet if a customer-service representative keeps him on the phone for half an hour sorting out an error the company made, all he gets is an apology.

"In this economy, if you’re a day late, you end up a lot more than just a dollar short," griped Woodruff, 30.

The tardy are a reliable source of revenue for companies, which reap millions of dollars in late fees from the lazy, the disorganized, the strapped and the momentarily forgetful — people who don’t follow a company’s timetable and then pay the penalty for it.

Consider all the possibilities of incurring a late fee: There are charges for late mortgage, gas, water and electricity payments. There’s the fee slapped on a late video rental and late credit card payments. There’s the dollar-a-minute overtime charge at the day-care center. Cable TV companies aren’t shy about adding penalties. Parking tickets? Maybe no late fee, but in some places they automatically double.

Many things get in the way of timely payments: the kids’ soccer practice, late nights at the office, running out of checks and the ever-popular running out of money.

But much of it is just the manana syndrome.

"Procrastination is one of the most common human traits, probably right after fear of public speaking," said Erik Gordon, a marketing professor at the University of Florida College of Business.

Nobody seems more keenly aware of the phenomenon than the credit card industry.

Consumers paid $6.6 billion in penalty fees to bank card issuers last year, almost double the amount paid in 1995, said James Daly, editor of Credit Card Management, a monthly industry magazine. About 90 percent of that amount was in late fees.

Those penalties make up about 7 percent of revenue for bank card issuers, Daly estimates.

Though the bulk of the bank card issuers’ revenue still comes from interest payments, interest has been dropping while the average late fee has been rising steadily since 1994, doubling to $28 in 2001, according to CardWeb.com of Frederick, Md., an online publisher of information about payment cards.

"The name of the game in pricing things like credit cards is to charge relatively favorable prices on the terms of the account that consumers pay attention to and relatively unfavorable prices on terms that consumers tend to ignore," said Lawrence Ausubel, an economics professor at the University of Maryland.

Annual fees fall into the first category while late charges fall into the latter, Ausubel said.

"Consumers typically think ‘A late fee won’t apply to me,’ " he added. "Firms noticed this over the past five years or so and started aggressively increasing late fee charges."

People who tend to ignore bills and pay the penalty are also the type most likely to hire a housekeeper, concluded Lynda Maddox, a professor of marketing and advertising at George Washington University who recently completed a research project on the issue for a private client. These people value their time above all else.

"Once you’ve paid a late fee, my guess is that you’re more likely to do it again and again, when you get over that first-time barrier," Maddox said. "It sort of seems more like a normal thing to do as opposed to ‘Oh my God, what’s going to happen to me if I don’t get that in on time?’ "

In focus groups conducted for Maddox’s research project, those who couldn’t fathom paying any kind of penalty repeatedly brought up one word to describe their polar opposites: lazy.

"There are wildly divergent attitudes toward paying late fees," Maddox said. "And it doesn’t have anything to do with income."

Some companies say their late charges have nothing to do with profit and everything to do with covering their costs.

"It’s more an issue of recouping losses," said Julie Malveaux, spokeswoman for the American Bankers Association.